The completion of the European Banking Union attracts billions of new capital for Eurozone banks

European Parliament. Committee on Economic and Monetary Affairs (ECON) meeting. Vote on the bank single resolution mechanism and fund. (EP Audiovisual Services).

European Parliament. Committee on Economic and Monetary Affairs (ECON) meeting. Vote on the bank single resolution mechanism and fund. (EP Audiovisual Services).

The European Parliament adopted yesterday with large majorities three legal texts completing the European Banking Union, two years after the initial decision to create a common system, at least in the euro area, of regular bank supervision and resolution of failing lenders. In two separate votes and an approval at second reading without a new vote, the legislators adopted the texts creating the Single Resolution Mechanism, the Bank Recovery and Resolution Directive and the Deposit Guarantee Schemes Directive. The banking union completes the economic and monetary union and ensures taxpayers will no longer be obliged to foot the bill when the banks face difficulties.

The European Sting has followed very closely the many months negotiation between the Parliament and the Council, especially over the details of the Single Resolution Mechanism and Fund. The legislators longed for an unbiased technical procedure in the final decision over a bank to be resolved or recapitalized. In the other side of the fence the powerful ECOFIN council made up by the ministers of Finance wanted more politically controlled decision making.

The final act

The final act of the long negotiations was centered on the functioning of the Single Resolution Mechanism and the Single Resolution Fund. The point of friction on the SRM came to be who will press the control button for a bank to be resolved and the Commission’s role in it. As for the SRF which is expected to cover the extra cost of resolving a failing bank, the antithesis focused on the ‘nationalisation’ or the mutualisation of the financial costs resulting from an eventual resolution.

Finally, a compromise was achieved in mid-way on both the functioning of the SRM and the funding of the SRF. According to the a Parliament Press release issued yesterday, the “Parliament won substantial concessions from finance ministers, especially on the rules establishing the bank single resolution mechanism and its related €55 billion bank-financed fund, steered through Parliament by Elisa Ferreira (S&D, PT). These greatly reduce the scope for power-play politics that could otherwise block action against banks, and ensured that the fund can be established faster and used more fairly”.

New capital starts flowing in

The final agreement between the EU lawmakers may not be ideal, but it permits to arrive at a functioning bank supervision mechanism under the roof of the European Central Bank and an independent Single Resolution Mechanism for failing lenders. In this way, the European Banking Union is well founded and guarantees the smooth reinstatement of the credibility of the currently shaking Eurozone banking system. In view of all that, the most severely hit lenders by the credit crisis in Ireland, Greece, Spain and Italy are now attracting billions of new capital placements invested in their balance sheets.

The ‘too big’ can also fail

The basic idea behind all this legislative work and the brand new Eurozone institutions (single supervision mechanism, single resolution mechanism and fund) are supposed to make the lenders more responsible. The up to now unwritten understanding that the taxpayers will rescue the ‘systemic’ banks if they fail, had to be permanently disbanded. In the new environment the banks will pay, through a levy, to create the SRF which will be capitalized with €55 billion. Many analysts estimate that this kind of money may prove not enough, amidst a crisis like the last credit crunch. For one thing though, the SRM will able to borrow more money if needed, on collateral of its future receipts from the banks.

On top of that, there are currently very positive signs, that the undercapitalized Eurozone banks are able to attract fresh capital and when the official ECB supervision is expected to commence there will be very little to be done in this respect. If the Greek and the Irish banks can attract billions of fresh capital, then every other lender can do the same under much better conditions. In any case, yesterday’s votes in the European Parliament have sealed the new institutions of the European Banking Union, the most important EU project after the introduction of the single euro money.

A new era for Eurozone

After the votes Michel Barnier the Internal Market and Services Commissioner said: “Today, the European Parliament has adopted 3 key texts to complete the legislative work underpinning the banking union…The EU has lived up to its commitments: the banking union completes the economic and monetary union and ensures taxpayers will no longer foot the bill when banks face difficulties”.

Of course the implementation will not be an easy task either. However, the details have been written in black and white and the three legal texts are a safe guide for the realization of the new institutions. Already, the European Central Bank has established its new and independent section to supervise the entire Eurozone banking industry. It applied to the letter the “Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions”. The specific tasks relating to the prudential supervision of credit institutions are conferred on the ECB, according to Article 127(6) of the Treaty on the Functioning of the European Union.

There is no doubt that the Eurozone is now solidly based on the new rules for good fiscal governance in the member states provided by the ‘two regulation package’, and the Banking Union as accomplished yesterday in the European Parliament. The single resolution mechanism was approved by 570 votes to 88, with 13 abstentions, the bank recovery and resolution approved by 584 votes to 80, with 10 abstentions. The update to the deposit guarantee directive was passed without a new vote (this was a second reading approval of the Council position, which reflected the agreement in the trialogue between the Parliament, the Council and the Commission), as provided by the Treaty of Lisbon.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Hydrogen power is here to stay. How do we convince the public that it’s safe?

These clothes were designed by artificial intelligence

Entrepreneurship’s key to success showcased by a serial young entrepreneur

4 things President Trump could learn from Jimmy Carter

How each country’s share of global CO2 emissions changes over time

Strawberries and child support; a Thai partnership

The story of 2018, in 10 charts

Hungary’s laws on helping vulnerable foreigners are ‘blatantly xenophobic’: UN rights chief

IMF’s Lagarde: Ukraine must fight corruption

Amid ongoing fighting in northeast Syria, hundreds cross Iraqi border in search of safety

One year on: EU-Canada trade agreement delivers positive results

You’ve heard of 5G, but what about the quantum internet?

Migrants: ‘A powerful driver’ of economic growth, ‘dynamism and understanding’

Central Africa: Security Council concerned by ‘grave security situation’, calls for better agency cooperation

Conflict, climate change among factors that increase ‘desperation that enables human trafficking to flourish’, says UN chief

To meet development goals, UN agriculture agency ‘cannot only focus on tackling hunger anymore’

How to make trade single windows more efficient with blockchain

Women-Friendly Spaces for Rohingya refugees: A place for protection and care

WEF Davos 2016 LIVE: “If we do not do properly the Paris agreement, then all 16 remaining goals will be undermined”, UN Secretary General Ban Ki-moon cautions from Davos

National parks transformed conservation. Now we need to do the same for the ocean

AI has huge potential – but it won’t solve all our problems

Brexit update: can the UK General Election of 12 December 2019 lead to a Brexit extension to 2030?

Schengen: new rules for temporary checks at national borders

The European Parliament launches a website on European election results

Skills, not job titles, are the new metric for the labour market

What lessons to draw from the destruction of Syria

UN health experts warn ‘dramatic resurgence’ of measles continues to threaten the European region

Will the European Court of Justice change data privacy laws to tackle terrorism?

UN ‘financial crisis,’ years in the making, Guterres tells budget body, proposes solutions

Why tourism policy needs to use more imagination

Moving from commitment to action on LGBTI equality

Myanmar and UN agriculture agency agree framework to improve nutrition and food security

Migration crisis update: The “Habsburg Empire” comes back to life while EU loses control

Can big events really go plastic-free? A water capsule made from seaweed may be the answer

Myanmar military target civilians in deadly helicopter attack, UN rights office issues war crimes warning

Historic first, as Tolstoy’s War and Peace lands in Geneva, to mark international centenary

Accountability for atrocities in Myanmar ‘cannot be expected’ within its borders – UN investigator

4 ways blockchain will transform the mining and metals industry

G20 LIVE: “Our response needs to be robust…otherwise we will only find the fire we are trying to put out”, UN Secretary General Ban Ki-moon just lit up G20 in Antalya Turkey

‘Make healthy choices’ urges UN agency, to prevent and manage chronic diabetes

Destabilizing Lebanon after burning Syria; plotting putsch at home: King and Crown Prince of Saudi Arabia

SDGs and the historical and economic impact on Brazilian health

COP21 Paris agreement: a non legally-binding climate pact won’t stop effectively global warming while EU’s Cañete throws hardest part to next Commission

Brexit: the time has come for the UK to clarify its position

UN ‘regrets’ new US position on legality of Israeli settlements

‘All atrocity crimes are preventable’ and can never be justified – UN chief

UN guidelines unveiled to prevent rising hearing loss among young smartphone listeners

Syria: Civilians caught in crossfire, UN refugee chief urges Jordan to open its border

Ukraine-EU deal sees the light but there’s no defeat for Russia

A Sting Exclusive: “Cybersecurity Act for a cyber-bulletproof EU”, by EU Vice-President Ansip

Here’s how to prepare South-East Asia’s young people for the future

A Sting Exclusive: “Youth voice must be heard in climate change negotiations!”, Bérénice Jond Board Member of European Youth Forum demands from Brussels

COP24: Huge untapped potential in greener construction, says UN environment agency

Mankind’s first tool to fight malaria also kills

This billion-dollar campaign wants to protect 30% of the planet by 2030

The Junior Enterprise concept, one of the best ways to develop practical skills

Wednesday’s Daily Brief: Guterres in Kenya, Prisoners sick in Iran, #GlobalGoals, Myanmar, Ukraine updates, and new space partnership

Polish PM chooses to focus on economy, amid questions on rule of law in Poland

UN agencies call for more resettlement and end to detention of asylum seekers in Libya

UN welcomes ‘record’ Brussels conference pledge of nearly $7 billion to support Syrians

More Stings?

Comments

  1. I enjoy what you guys tend to be up too. Such clever work and reporting!

    Keep up the wonderful works guys I’ve added you guys to
    my blogroll.

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s